Sri Lanka is bracing for a severe trade hit as a new 20% tariff imposed by the Trump administration threatens to slash key exports to the United States. A simulation report predicts losses up to $1.82 billion by 2026, with the apparel and rubber sectors hardest hit.
Sri Lanka could face a devastating blow to its export economy, with projected losses between $1.62 billion and $1.82 billion in trade with the United States by 2026, following the implementation of a new 20% tariff.
This projection, revealed in a new trade simulation report, compares grimly with Sri Lanka’s US export value of $2.97 billion recorded in 2023. The new tariff, introduced by the Trump administration on August 1, follows high-level trade discussions between the two nations, which included virtual participation from President Anura Kumara Dissanayake.
The simulation also suggests that without this new 20% tariff, the total value of trade between Sri Lanka and the United States in 2026 could have reached $3.44 billion.
Garment sector takes a direct hit
The Sri Lankan apparel industry is expected to suffer the brunt of the tariff hike, with severe direct and indirect impacts predicted across multiple export categories. One of the most significant projected declines is in “other women’s undergarments,” the largest export category. Trade in this category is expected to shrink to $100.14 million in 2026, a sharp drop of $174 million compared to the estimated $274.15 million had no additional tariff been imposed. This is also down from $224.8 million in 2023.
Similarly, knit women’s suits will face an existing 11.7% tariff plus the new 20%, reducing their trade value by $162 million.
Export loss spreads beyond apparel
The impact of the tariffs will extend beyond garments, affecting several of Sri Lanka’s traditional export sectors:
- Knitted sportswear: expected drop of $44.06 million
- Men’s knitted underwear: $28.67 million decline
- Women’s non-knitted coats: $8.36 million loss
- Rubber tires: $16.12 million drop
- Rubber sheets: $1.34 million reduction
- Used rubber tires: $24.6 million trade value loss
In addition, locally valued products like gems, tea, cinnamon, and coconut oil are expected to feel the pressure:
- Gems: $12.4 million decrease
- Tea: $11.3 million loss
- Cinnamon: $3.886 million drop
- Coconut oil: Previously duty-free, but now forecast to lose $5.5 million, reducing value to $27.18 million in 2026
Regional rivals gain advantage
While Sri Lanka prepares for a massive export downturn, competitors like Bangladesh and Vietnam are set to benefit. The report predicts Bangladesh’s exports to the US will rise by $104 million and Vietnam’s by $184 million as they capitalize on Sri Lanka’s higher costs.
It is important to note that the figures presented are from simulation reports, designed to test economic scenarios. They are projections and may not represent exact future outcomes.
Still, the outlook raises alarm bells for policymakers and exporters alike, as Sri Lanka’s trade future with its largest export partner faces unprecedented uncertainty.
